Different forex trading order types

29Jul

Why you need to learn the different types of orders in forex.

You made a trade that you carefully studied the night before. A couple of hours are spent learning how economic indicators influence the market, and your prepared to trade ahead of the non-farm payroll report which is released the following morning; your ready to cash in!

Explicit support and resistance levels are determined, and you commence an internal dialogue of intent to be composed and sensible throughout the trading day. The announcement is released; you are absolutely convinced that your long position will yield a several pip gain.

Twenty minutes later, the currency pair that you bought long collapses past your noted support level due to intense volatility without giving you a chance to sell the position even though your finger was prepared, and hovering over your mouse, waiting like a venomous snake ready to strike.

Your now down several hundred dollars when you could have enforced a proper order type strategy and potentially broke even.

Has this ever happened to you?

Beginning traders generally neglect taking advantage of all the types of orders in forex market available to them. Usually, we see them market into a position and market out of positions.

Emotionally, greed sets in and they feel that if they don't get involved instantaneously, they will lose out on making money in the trade.

They don't give themselves the necessary time needed to appraise the trade correctly and use all the tools at their disposal.

Smart, experienced traders very seldom use market orders. They don't pay retail prices and typically wait for their conditions to be met while integrating proper techniques to avoid a capital risk surge by using different order types in forex trading.

What were going to do here is give a refresher on the types of orders in forex trading so you can begin really taking advantage of what is available and hopefully incorporate additional order types to your trading style and money management approach better.

The list of order types in forex trading

Market Orders

Limit Orders

Take Profit Orders

Stop Loss Orders

Trailing Stop Orders

Market Orders

A market order is executed immediately when placed. It is priced using the current spot, or market price.

A market order is an open position and as the value of your position deteriorates, it becomes a loss.

Limit Orders

A limit order is an order to buy or sell a currency pair, but only when certain conditions are satisfied.

Until these conditions are met, the order is considered a pending order and will not execute.

Take-Profit Order

A take-profit order automatically closes an open order when the exchange rate reaches the specified threshold.

Take-profit orders are used to lock-in profits

Your trade is closed at the current market rate. In a fast moving market, there may be a gap between this rate and the rate you set for your take-profit.

Stop-Loss order

A stop-loss order is a defensive play that you can use to help protect against further losses.

A stop-loss automatically closes an open position when the exchange rate moves against you and reaches the level you indicate.

Trailing Stop Orders

Resembling a stop-loss, a trailing stop can be used to diminish losses.

A trailing stop resembles a stop-loss in that it automatically closes the trade if the market moves in an unfavorable direction by a specified distance.

The key feature of a trailing stop is that as long as the market price moves in a favorable direction, the trigger price automatically follows the market price at a specified distance.

This allows your trade to gain in value while reducing the amount of loss you are at risk for. Knowing how to execute all order types and incorporating them into your trading style is critical for both confidence, and money management risk aversion.

Take the time to thoroughly learn these order types in more detail, and decide how they fit into your strategy to minimize losses and maximize gains.

Happy Trading!

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The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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